Pak Economy Watch: $500m Eurobond issue

Pakistan said it has appointed J.P. Morgan Chase & Co. and Deutsche Bank AG as lead managers for a $500 million Eurobond offering.

This is an archived blog post from The Acorn.

ABN Amro Holding NV also has been given a co-lead manager role for the Eurobond issue. A person familiar with the matter said the government plans to issue the bond early next year.

The government said the mandate marks the return of Pakistan to the international capital market after its last international bond in 1999,which combined three previous bonds into a single $623 million issue due 2005. Asian Wall Street Journal.

The proposed bond issue, which will contribute to repaying Pakistan’s debt, would mark the country’s first foray into the international bond market since sanctions were imposed following its nuclear tests conducted in 1998. Pakistan last sold a $300m global bond in 1997. Financial Times.
The government says the pricing of the Eurobond would depend on the market response at the time of placement. However, generally, it is expected that the new issue would attract around 300 basis points above the US Treasury for a similar five-year tenor.

The Ministry of Finance would not divulge the details of contract with the lead managers. “These details would be made public when the transaction is completed over the next few months,” a senior official said. However, a news report indicated that out of the pocket expenditures could be around $16.6 million. The government says that it has followed a very transparent and competitive process in awarding the mandate. The News/Jang.

“But our reserves have been built essentially for meeting any unforeseen crisis or a catastrophe and not for consumption purposes,” he said. Mr Shaukat said since Pakistan had been offered a better credit rating by Moody’s Investor Services from B3 to B2 and now Standard and Poor’s was also likely to give a similar rating, it was prudent to seek funds through bonds flotation.

Pakistan’s credit rating has recently been upgraded by Moody’s Investor Services in recognition of its improvements in overall economic situation in general and external balance of payments in particular. This transaction, the announcement said, was specifically meant to establish bench marking in the international capital market as Pakistan’s foreign exchange reserves stands at $11.5 billion - sufficient to finance 11 to 12 months of imports.

Similarly, budget deficit is targeted to decline to four per cent of GDP this year, inflation is currently hovering around three per cent, exchange rate is stable, current account balance is in surplus, the burden of both external and public debt has declined substantially; exports, imports and tax collection are growing at double digit level, and growth which was 5.1 per cent last year is targeted at 5.3 per cent this year.

Let’s wait to see what happens by then. This bond issue may be the first test of the regime’s boast of the Pakistan economy’s ‘new strength’. One just hopes this $500m is not used to support the ‘arms race’ which Islamabad sees in South Asia.

Update: S&P rates it a BB-

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